Module 5 Comprehensive Assessment: Part A: Portfolio Theory and Asset Allocation
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Question 1 of 3
1. Question
Grading can be reviewed and adjusted.Grading can be reviewed and adjusted.Hint
Expected return = 0.7 × 10% + 0.3 × 5% = 8.5%
Portfolio variance = (0.7)²(16)² + (0.3)²(4)² + 2(0.7)(0.3)(16)(4)(0.2) = 125.44 + 1.44 + 5.376 = 132.256
Standard deviation = √132.256 = 11.5% -
Question 2 of 3
2. Question
Grading can be reviewed and adjusted.Grading can be reviewed and adjusted.Hint
MPT limitations include: assumption of normal distributions (markets show fat tails), static framework (parameters change over time), and input sensitivity (small changes in expected returns dramatically affect optimal portfolios).
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Question 3 of 3
3. Question
Grading can be reviewed and adjusted.Grading can be reviewed and adjusted.Hint
Sample allocation: 70% stocks (40% domestic large-cap, 15% domestic small-cap, 15% international), 25% bonds (20% domestic, 5% international), 5% alternatives (REITs). Justification based on long time horizon, moderate risk tolerance, and diversification benefits.